AnnuAl RepoRt enduring missions. emerging opportunities.

Transcription

1 AnnuAl RepoRt 2011 enduring missions. emerging opportunities.

2 ENDURING MISSIONS emerging opportunities Fifty years ago, CSC was among the first to partner with the U.S. Federal Government on ambitious efforts that advanced science, engineering and technology. Twenty years ago, we pioneered the use of outsourcing to transform business agility and focus, cost efficiency and process quality. Today, these enduring missions lend strength to our global business as we aggressively pursue the emerging opportunities that are redefining our industry. From outsourcing, consulting and systems integration to cloud computing, cybersecurity and industry-specific business solutions, we are building on a legacy of success to help shape the IT services future for the benefit of our shareholders, our clients and our company. 2 CSC Annual Report 2011

3 Fiscal Year 2011 in Review Despite the challenges of Fiscal Year 2011, we grew our commercial business, expanded our offerings in such important new markets as cloud and cybersecurity, strengthened our balance sheet and returned cash to our shareholders through dividends and share buybacks. throughout Fiscal Year 2011, CSC s commercial business delivered positive year-over-year revenue growth, driven by our financial services industry vertical and strengthening market demand across our Americas and Asia-pacific operations. New commercial bookings of $8.5 billion included a $580 million agreement with financial services leader UbS to provide voice and data network, security and telecommunication services, and with tryg, a large Scandinavian insurance provider, a $348 million agreement that includes delivery of emerging services such as private cloud technologies. the U.S. Federal government operated under a continuing resolution throughout the second half of Fiscal Year 2011, and the resulting budget uncertainty affected the top line of our North American public Sector (NpS) unit. Further, resolution of government concerns regarding organizational conflict of interest (OCI) led to the divestiture of two NpS business entities (shown as discontinued operations). However, even in this challenging environment, CSC was again chosen by FORTUNE magazine from among more than 1,400 businesses as a World s most Admired Company. NpS contract wins totaled $5.5 billion for the year, including more than $600 million in health-related awards. Other public-sector wins this year included agreements to help the U.S. Social Security Administration modernize systems and architecture, to implement and operate the U.S. Department of labor Office of workers Compensation programs central bill process service and to support the U.S. National Oceanic and Atmospheric Administration (NOAA) with high-performance computing for enhanced climate modeling. throughout Fiscal Year 2011, we continued to position CSC for future top-line growth, given what we believe is a major transition in the global It services market. while this market continues to expand michael w. laphen ChAIRMAn, president AnD ChIeF executive officer CSC AnnuAl RepoRt

4 52 YeARS of it industry leadership and service to businesses and governments worldwide # 2 ranked #2 in it Services by FORTUNE, 2011 overall, we believe that growth will be concentrated in two market segments: emerging services (cloud and other as-a-service offerings) and business solutions (industry-specific solutions and software based on intellectual property, including fullservice business process outsourcing [bpo] offerings). the traditional It services segment will continue, for the foreseeable future, to represent the majority of the services and solutions that our clients and potential clients procure, and it will remain the dominant portion of the market and of CSC s portfolio. However, incremental growth will increasingly come from emerging services and business solutions, and we have aggressively invested in these two segments, organically as well as through acquisition. with an array of new cloud solutions, seven cloud-enabled data centers and extensive alliance partnerships, we now offer exceptional Infrastructure as a Service (IaaS) depth and breadth. Along with CSC trusted Cloud, our as-a-service offerings include industryspecific Software as a Service (SaaS) and business process as a Service (bpaas) solutions for financial services, healthcare, energy and other industries. Four strategic acquisitions in Fiscal Year 2011 enhanced our competitive advantages in cybersecurity, expanded our intelligence support to the U.S. Federal government and provided business solutions for the utilities industry and for the healthcare industry s life sciences sector. when completed, the announced acquisition of isoft group limited, one of the world s largest healthcare solution providers, will strengthen CSC s leadership in the global healthcare It market. we recognize that future growth in It spend will likely come from areas outside of traditional It services. by investing in strategic capabilities, incubating new solutions and funding other initiatives to move our business forward, we are actively preparing to capitalize on the higher-growth segments of our markets that promise to reshape our marketplace in Fiscal Year 2012 and beyond. hardware and Software Independence powerful new it solutions are constantly emerging, yet many organizations are limited to their service providers hardware and software products. By remaining independent while collaborating closely with dozens of alliance partners, CSC is able to provide informed, objective advice and maximize client choice. As industry consolidation intensifies, our unique position as the world s largest and most respected independent it services provider will continue to set us apart and provide a significant advantage for our clients. 2 CSC AnnuAl RepoRt 2011

5 positioning for Growth in Fiscal year 2011 we sharpened our focus on the expanding markets for emerging services and business solutions to better position CSC for growth during the market transition. Cloud Computing A recognized leader in cloud computing, CSC won cloud engagements this year with Amp, tryg, the State of California and others and inaugurated cloud pilot programs with both existing and new clients. we now offer CSC bizcloud a private cloud offering that provides enterprises the agility and convenience of a public cloud but in the more secure and controlled environment of a private cloud. healthcare we won multiple public-sector healthcare contracts and we continued to deliver health information systems projects for the governments of the UK, Denmark, the Netherlands and the State of New York. In addition, we created the first-ever online meaningful use community and introduced Careveillance software to improve patient monitoring and health. And our purchase of Image Solutions, Inc., a global leader in submission management, significantly enhanced our regulatory submission management for pharmaceuticals. Cybersecurity wins included an important engagement with the U.S. Air Force to provide cybersecurity to the 24th Air Force Cyber Command. we introduced innovative StrikeForce cyber services to help clients more effectively address today s cyber threats. In addition, the acquisition of vulnerability research labs (vrl) will enable us to deliver next-generation threat prevention. Financial Services CSC won new contracts with UbS and other industry leaders and delivered CSC riskmaster claims management software and Celeriti banking and cards management software to new clients. Other business solutions launches included Integral, a multilingual, multicurrency software product for all lines of insurance, and a series of smartphone apps to support life insurance agents and their customers with more efficient processes. Overall, CSC s largest and most mature commercial vertical achieved significant growth in Fiscal Year 2011, providing a model of success as we further synchronize our industryaligned go-to-market approach. CSC AnnuAl RepoRt

6 Financial Performance Fiscal Year 2011 revenues of $16 billion again placed CSC in the Fortune 200 of the world s largest companies. CSC is a large global enterprise operating in 90 countries, with a workforce of approximately 91,000. As referenced below, revenue over the last 3 years has been sustained at approximately the $16 billion level, despite the worldwide economic instability affecting both the public and private sectors. Operating income and earnings per share declined in Fiscal Year 2011 largely as a result of the accounting adjustments in the Nordics region, primarily Denmark, and the inceptionto-date profit adjustment taken in the fourth quarter on the UK National Health Service (NHS) contract. Free cash flow has averaged in excess of 90 percent of net income over the last 3 years. In Fiscal Year 2011, although cash receipts were significantly impacted by the delay in finalizing the NHS agreement, free cash flow still reached 84 percent of net income attributable to CSC common shareholders. Over the last 3 years, strong cash flow has fueled internal investments in people and technology and funded key acquisitions, debt reduction, dividend initiation and share buyback. CSC s balance sheet continues to strengthen and debt/equity ratios continue to improve, while the company sustains our healthy investment-grade credit rating. Dividend Initiated, Share Buyback Authorized CSC initiated the first quarterly dividend policy in our 52-year history. Additionally, the CSC Board of Directors increased the dividend by 33 percent at the midpoint of the fiscal year and authorized a $1 billion share buyback program to further enhance shareholder returns. $16.4 $15.9 $ % 99% 84% 43.0% 36.5% 25.4% revenue in billions free cash flow/net Income attributable to CSC Common Shareholders debt as a percentage of total capitalization # #155 in the 2011 Fortune ,000 Experienced Professionals 60+ Service Delivery Centers 4 CSC Annual Report 2011

8 Confidence, Delivered. CSC continued to innovate and deliver a diverse portfolio of high-quality services to our commercial and public-sector clients around the world. Helping Leading Businesses Gain Agility, Enter New Markets In commercial markets, we helped clients in a wide range of industries move quickly to enhance their customers experience, differentiate their offerings through mobility and the cloud, and enable their M&A, divestiture and globalization strategies. This year we collaborated with AMP, one of Australia s leading wealth management companies, on the implementation of a cloud solution. And to better serve our global utility clients, we acquired leading consultancy Bass & Company, augmenting our capabilities in smart utility, revenue cycle management and energy efficiency. Our long-term relationship with DuPont entered a new phase as we explored the joint development of a Business Process as a Service (BPaaS) offering with this global leader. In addition, we provided insurance leader Fiscal Year 2011 marked our 19th year of service to General Dynamics and another evolution of the historic outsourcing partnership that helped create the modern IT services industry. Swiss Re with BPO services designed to optimize operations and improve customer service. We also initiated major new projects with Airbus, MBDA and Textron, among many others. CSC s partnership with Zurich Financial Services spans a wide range of services, including the largest insurance applications outsourcing project in history. This year we continued modernization and consolidation initiatives that are enabling Zurich to improve IT productivity, gain flexibility in software component use and achieve high user-satisfaction rates. Enabling Governments to Do More with Less For our U.S. public-sector clients, Fiscal Year 2011 was a transition year that combined the challenges of implementing complex governmental reforms with an imperative to do more with less. CSC s capabilities in delivering mission-specific solutions, low-cost operational services and IT solutions that improve productivity aligned well with clients goals of serving stakeholders better and achieving more despite constrained resources. CSC collaborated with the Centers for Medicare & Medicaid Services to transform quality reporting systems, U.S. citizens interact every day with systems managed and designed by CSC, through our work supporting NOAA, the Department of State and other agencies. delivered technical support services to the Social Security Administration and provided visa support services to the U.S. Department of State. At the same time, our scientists and engineers supported the U.S. Environmental Protection Agency objective of protecting the U.S. water supply and worked with NOAA to monitor weather and climate change. We were also there to implement new flight support systems for the Federal Aviation Administration and to help manage Federal development of biodefense vaccines. On the historic Logistics Modernization Program (LMP), we enabled the U.S. Army to improve performance of one of the world s largest supply chains through implementation of a robust Enterprise Resource Planning solution. Now fully deployed, this CSC-developed system operates in 50 locations worldwide, manages more than $25 billion in inventory and conducts transactions with some 50,000 vendors. 6 CSC Annual Report 2011

9 Supporting the Warfighter this year the people of CSC were again deployed throughout the united States and the world in support of the warfighter on projects including battlefield medical simulation training, helicopter flight simulation, surface ship navigation and test range management. Reducing the enterprise Carbon Footprint Carbon impact reporting and management, a component of CSC s innovative enterprise Compliance and Sustainability offering, is an on-demand enterprise carbon management solution, delivered via a SaaS model, that does not require software installations or additional hardware. the solution enables organizations to consolidate greenhouse gas data into a single, centralized repository to better analyze, forecast and reduce the total enterprise contribution to greenhouse gas emissions. Mobilizing Care with patient In Your pocket CSC is helping clients use mobile devices, social media tools and other disruptive technologies to enhance processes and transform operations. For example, in Fiscal year 2011 we launched patient in your pocket, a wireless application for rim BlackBerry smartphones that enables on-the-go healthcare professionals to more efficiently and effectively provide highquality patient care. CSC AnnuAl RepoRt

10 Transforming Agility, Efficiency and Business Effectiveness SECURING MISSION-CRITICAL ASSETS Delivering The Promise Of Cloud The U.S. Air Force 33rd Network Warfare Squadron (33 NWS) provides the Air Force Computer Emergency Response Team (AFCERT), which operates 24x7x365 to ensure the defense of the Air Force Global Information Grid (AF GIG). To better detect, defend against and deter unauthorized entry into this resource, 33 NWS sought a network management solution to secure the 16 gateways that serve as centralized access to the AF GIG. To help meet this objective, CSC performed in-depth analysis and fielded technical solutions for all phases of the largest network redesign in Air Force history, providing a centrally controlled interface between Air Force network assets and the rest of the GIG. As a result of this project, CSC now monitors, reports and conducts analysis of all traffic on the af.mil domain. Overall, our support has helped improve the security posture of Air Force computer networks and systems within the scope of 33 NWS operational requirements and mission execution. In a very competitive marketplace, Royal Mail Group is the only UK postal business with a duty to deliver to every address in the country at a consistent price. To counter the decline in letter post and win business in profitable areas like parcel delivery, the organization embarked on a wide-ranging transformation of its business and the services that underpin it. CSC identified the potential of a cloud-based solution to help address Royal Mail Group s objectives of boosting agility, responsiveness and scalability. Building on a leading platform, we created a flexible, fully managed cloud and collaboration service. As a result of this collaboration, CSC successfully migrated approximately 30,000 Royal Mail Group employee accounts to the cloud. And Royal Mail Group avoided the increased running costs and high capital investment associated with conventional desktop technology. 8 CSC Annual Report 2011

11 ENABLiNG improved DECisioN MAkiNG An independent explorer and producer of natural gas and liquids in the onshore united States, petrohawk energy Corporation is a leader in leveraging its technical expertise to establish and develop large-scale operations in fast-growing u.s. shale opportunities. As the company grew, petrohawk recognized the need for an integrated business transformation to change processes and organizations as well as empower employees and management to operate as a sustainable business. As part of the new Futurehawk program, the company selected CSC s petroleum enterprise intelligence solution using oracle Business intelligence Analytics to bring together critical financial, technical and operational data for improved decision making. As a result of this project, petrohawk staff and management can now access the right information at the right time to make accurate and timely decisions across the field, operations and corporate levels. in addition, the company has enhanced collaboration and eliminated silos while significantly reducing redundancies and improving data consistency. MAkiNG THE CusToMEr ExPEriENCE CouNT Scottish Widows is one of the most recognized brands in the life, pensions and investment industry in the uk. Following upheavals in the uk financial economy, the organization sought innovative ways of empowering employees to manage their finances with greater flexibility and security by providing access to trustworthy financial education and guidance. to help address this objective, CSC and Scottish Widows together developed a groundbreaking new service that provides an excellent user experience, allowing employees to improve their knowledge and take control of their finances via a 24x7 online self-service offering. the core of the solution is CSC s proprietary Corporate Wealth management (CWm) concept, branded mymoneyworks when used by Scottish Widows. it is the first of a new breed of intuitive, customer-centric online workplace savings offerings, which delivers a high-quality experience with maximum speed and convenience to user and service provider alike. Currently, four employers across the uk provide access to mymoneyworks, giving more than 12,000 employees the ability to manage their pensions and other financial services portfolios through the service. over the near term, usage is anticipated to rise to 20 employers, with a total of nearly 25,000 employees. CSC AnnuAl RepoRt

12 The Opportunities Ahead As the market transition unfolds, we see opportunities in select areas that play to CSC s strengths. And we are confident that we have the right strategy to capitalize. In cloud computing, CSC will provide end-to-end support for organizations that seek to improve efficiency and agility by moving to the cloud. Along with our IaaS capabilities, we now offer an extensive catalog of PaaS, SaaS and BPaaS solutions. In cybersecurity, we will help public and private enterprises cost-effectively implement countermeasures to address advanced cyber threats. In business solutions, we anticipate capturing opportunities in the financial services industry with SaaS offerings and technologyenabled business process services. In the healthcare market we are also strongly positioned, with the ability to help U.S. enterprises qualify for Federal meaningful use incentives. And as one of the largest providers of infrastructure services to the U.S. Government, we are well-qualified to support data center consolidation efforts with virtualization and cloud solutions. In a rapidly evolving marketplace, CSC s agility and expertise, our ability to innovate and our hardware and software independence strongly position us for growth. As we look to the future, we stand ready to create increased shareholder value by delivering the leading IT services our clients expect, anywhere in the world and however they choose, and with an absolute commitment to enabling their boldest ambitions. Thank you for your support of CSC. Michael W. Laphen Chairman, President and Chief Executive Officer 10 CSC Annual Report 2011

13 Our Case for Investment CSC is one of the world s leading IT services companies, a source of innovation for our clients, a great place to work for our people and a potentially rewarding investment for our shareholders. In the year ahead, we look forward to delivering shareholder value as a result of these strengths: ExCELLENT Market Position As one of the world s only independent IT services providers, CSC is a trusted partner to approximately 2,500 publicand private-sector organizations worldwide, a Fortune 200 company and a Fortune Top 2 Information Technology Services leader, with a full range of service offerings and a global presence that encompasses 90 countries. Market- Leading Delivery Capabilities With the strength of our cloud computing and broader as-aservice business and our global reach, few organizations can now match CSC s ability to deliver the highest-quality services worldwide through a variety of effective delivery models. Growth Foundation CSC is well-positioned to capitalize on today s higher-growth commercial and public-sector market segments from the emerging technologies of cloud computing and cybersecurity to the expanding market for business solutions tailored for financial services, healthcare and other industries. Commitment to Enhancing Shareholder Returns In Fiscal Year 2011, we initiated the payment of quarterly dividends and launched a $1 billion open market stock repurchase program. These actions, along with our strategy designed to increase operating margins and create topline revenue growth, demonstrate the CSC commitment to enhancing shareholder returns. CSC Annual Report

14 UNITED STATES SECURITIES AND EXCHANGE COMMISSION (Mark One) x o WASHINGTON, D.C FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 1, 2011, OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No.: COMPUTER SCIENCES CORPORATION (Exact name of Registrant as specified in its charter) Nevada (State of incorporation or organization) (I.R.S. Employer Identification No.) 3170 Fairview Park Drive Falls Church, Virginia (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (703) Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered Common Stock, $1.00 par value per share New York Stock Exchange Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No As of October 1, 2010, the aggregate market value of stock held by non-affiliates of the Registrant was approximately $7,052,748,247. There were 154,954,273 shares of the Registrant s common stock outstanding as of June 3, DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant s definitive Proxy Statement for its 2011 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after April 1, 2011, are incorporated by reference into Part III hereof.

16 PART I Item 1. Business INTRODUCTION AND HISTORY General Computer Sciences Corporation (CSC or the Company), a Nevada corporation, is one of the world leaders in the information technology (IT) and professional services industry. Since it was founded more than 50 years ago in 1959, the Company has helped clients use IT more efficiently in order to improve their operations and profitability, focus on core competencies, and achieve business results such as increased agility and top-line growth. The Company s clients generally comprise governments and commercial enterprises that rely upon the use of information services and associated systems for the conduct of their operations. These clients commonly engage with industry specialists for the development, deployment, and ongoing operation of IT services and IT-enabled business operations. CSC s business strategy centers on maintaining proficiency and favorable cost profiles related to designing, implementing, and/or operating critical information-based systems for our clients. Increasingly, these systems serve highly-interconnected user populations (which are increasingly mobile in nature), and rely upon complex sources of data and high-performance computing and storage assets. CSC offers a broad array of services to clients in the commercial and government markets and specializes in applying contemporary practices towards the employment of IT in order to achieve the strategic objectives of its customers. CSC s service offerings include IT and business process outsourcing, emerging services such as cloud computing and cybersecurity protection, and a variety of other IT and professional services. IT outsourcing involves operating all or a portion of a customer s technology infrastructure, including systems analysis, applications development, network operations, desktop computing and data center management. CSC also provides business process outsourcing, managing key transactional business functions for clients, such as procurement and supply chain, call centers and customer relationship management, credit services, claims processing and logistics. In addition, CSC provides an array of emerging services in the areas of Infrastructure as a Service (IaaS), Software as a Service (SaaS), Business Process as a Service (BPaaS), Platform as a Service (PaaS), and other emerging technologies. IT and professional services include systems integration, management consulting, technology consulting and other professional services. Systems integration encompasses designing, developing, implementing and integrating complete information systems. Consulting and professional services include advising clients on the strategic acquisition and utilization of IT and on business strategy, security, modeling, simulation, engineering, operations, change management and business process reengineering. The Company also licenses sophisticated software systems including SaaS offerings for the financial services and other industryspecific markets and provides a broad array of end-to-end business solutions that meet the needs of large commercial and government clients. The Company focuses on delivering results by combining industry-specific knowledge and process design and improvement expertise with innovative, high-quality global delivery models to provide flexible and scalable solutions. To do so, CSC draws on its vast experience in designing, building and maintaining large, complex, mission-critical systems and applies this knowledge to current business challenges. While it maintains more than 100 vendor alliances to have access to the latest technology, CSC does not have exclusive agreements with hardware or software providers and believes this vendor neutrality enables it to better identify and manage solutions specifically tailored to each client s needs. Major Markets CSC provides its services to clients around the world and in many commercial industries, as well as to governments of the U.S. federal, state, and local segments, in addition to foreign governments. The Company delivers these services through three broad service lines or sectors: North American Public Sector (NPS), Managed Services Sector (MSS), and Business Solutions and Services (BSS). Geographically, CSC has major operations throughout North America, Europe, Asia and Australia. Segment and geographic information are included in Note 15 of the Notes to the Consolidated Financial Statements. For a discussion of risks associated with our foreign operations, see Item 1A. "Risk Factors." The Company s NPS line of business, providing IT-related services to the U.S. federal government since 1961, is a leading federal contractor and is one of its major IT service providers. CSC serves a broad federal customer base, including most civil departments and branches of the military, as well as the Department of Homeland Security and NASA. The Company provides a broad spectrum of services to the U.S. federal government, ranging from traditional systems integration and outsourcing to complex project management and technical services. Key offerings include enterprise modernization, telecommunications and networking, managed services, base and range operations, and training and simulation

17 The Company s MSS line of business provides information systems outsourcing services to clients in a broad array of industries including aerospace and defense, automotive, chemical and natural resources, consumer goods, financial services, healthcare, manufacturing, retail and distribution, telecommunications, and technology. The Company s BSS line of business also serves a broad array of industries, providing industry specific solutions in areas such as consulting and systems integration, business process outsourcing, and intellectual property-based software to chemical, energy and natural resources; financial services; technology and consumer; manufacturing; healthcare; and public sector organizations. In addition, BSS provides professional technology staffing services in Australia, computer equipment repair and maintenance services in Asia, and credit reporting services in the United States. During the last three fiscal years, the Company s revenue mix by line of business was as follows (adjusted to reflect discountinued operations): Fiscal 2011 Overview During fiscal 2011, CSC announced awards valued at approximately $14 billion, comprised of $3.5 billion in BSS segment awards, $5.0 billion of MSS awards and $5.5 billion of NPS awards. For NPS, announced values for indefinite delivery and indefinite quantity (IDIQ) awards represent the expected contract value at the time a task order is awarded under the contract. The bookings value of MSS announced awards is estimated at the time of contract signing and includes optional contract years. New contract bookings are determined using then existing projections of service volumes and then existing currency exchange rates, and are not subsequently adjusted for volume or currency fluctuations. The announced values for BSS line of business awards are based on firm commitments. A weak global economy throughout much of fiscal 2011 continued to cause soft demand for IT discretionary spending. Some companies, including some of the Company s customers, have encountered severe financial difficulty, which could ultimately result in their bankruptcy, which, in turn, may have an impact on the financial condition of the Company. Therefore, the Company continues to closely monitor client demand in order to appropriately respond to changing environments. Our response has been to continue exercising cost discipline, with careful management of headcount, capital expenditures, and other resources. In future periods, CSC s results of operations and financial condition may be negatively affected by conditions in the various global markets in which the Company operates, or client and government budget constraints. The current weak economic environment increases the pressure on both businesses and governments around the world to adapt. Economic conditions could impact the credit quality of the receivables portfolio and, therefore, the level of provision for bad debts. CSC continues to review credit policies and collection efforts in both the origination of new business and the evaluation of existing projects. Contract terminations, cancellations or delays could result from factors that are beyond our control and may be unrelated to our work product, the progress of the project, including the business, financial condition of the client, changes in ownership, management at our clients, changes in client strategies, the economy or markets generally. When contracts are terminated, we lose the anticipated revenues and might not be able to eliminate associated costs simultaneous with contract termination and the contract assets may become impaired. Consequently, our profit margins in subsequent periods could be lower than expected. Currency fluctuations will continue to have an effect on both revenue and profit. The Company s current hedging program, however, attempts to mitigate some balance sheet risk, economic risk, and margin erosion. Acquisitions North American Public Sector 37% 38% 36% Managed Services Sector Business Solutions and Services Subtotal Eliminations (1) (1) (1) Total Revenues 100% 100% 100% During fiscal 2011, CSC acquired four privately-held companies; two during the second quarter for $61 million, and two during the third quarter for $95 million. Two of the acquisitions were made in CSC s NPS segment and two in the BSS segment. The first NPS segment acquisition enhanced the Company s offerings and position in the key areas of cybersecurity and intelligence, surveillance and reconnaissance solutions. The expanded cybersecurity offerings are expected to support clients both in the public sector and commercial sector, including financial services, energy and natural resources, healthcare, manufacturing, and technology and consumer markets. The second NPS acquisition strengthened CSC s systems integration capabilities in sensor integration, intelligence processing and in-theater analysis and exploitation

18 The first BSS acquisition expanded CSC s presence and offerings in the chemical, energy and natural resources markets by adding enhanced offerings in the industry-relevant business solutions and services. The second BSS segment acquisition expanded CSC s presence in the life sciences sector by enhancing its service offerings to include integrated, end-to-end business solutions for electronic regulatory submissions, and integrating other acquired expertise with CSC s established Cloud/SaaS capabilities. During fiscal 2010, CSC acquired a business in South America for approximately $8 million. This acquisition brought CSC geographic expansion in the BSS segment's consulting business. During fiscal 2009, CSC acquired two separate, privately-held entities for approximately $38 million in cash, plus contingent consideration of $10 million through fiscal These acquisitions allowed CSC to expand service offerings within the NPS segment and diversify its BSS offshore software development capabilities. Also during fiscal 2009, the Company acquired the remaining stake of 49.9% of Computer Systems Advisers (M) Berhad (CSAM) not previously owned by the Company s wholly owned subsidiary, CSA Holding, Ltd. The acquisition allowed for better integration of similar business between CSAM and CSC s other operations. Divestitures During fiscal 2011, CSC divested two businesses within its NPS segment whose ultimate customer is the U.S. federal government, one during the second quarter for consideration of approximately $56 million and another during the fourth quarter for consideration of approximately $65 million. Both of these divestitures were driven by governmental Organizational Conflict of Interest concerns. These divestitures have been reflected as discontinued operations in our financial statements and previously reported amounts have been recast throughout this report. For further discussion of these acquisitions and divestitures see Notes 3 and 4 to the Consolidated Financial Statements. Competition The IT and professional services markets in which CSC competes are not dominated by a single company or a small number of companies. A substantial number of companies offer services that overlap and are competitive with those offered by the Company. Some of these are large industrial firms, including computer manufacturers and major aerospace firms that may have greater financial resources than CSC and, in some cases, may have greater capacity to perform services similar to those provided by the Company. In addition, the increased importance of offshore labor centers has brought a number of foreign-based firms into competition with CSC. Offshore IT outsourcers selling directly to end-users have captured an increasing share of awards as they compete directly with U.S. domestic suppliers of these services. The Company continues to increase resources in offshore locations to mitigate this market development. CSC s ability to obtain business is dependent upon its ability to offer better strategic concepts and technical solutions, better value, a quicker response, more flexibility, better quality, a higher level of experience, or a combination of these factors. In the opinion of the Company s management, CSC s lines of business are positioned to compete effectively in the BSS, MSS and NPS markets based on CSC's technology and systems expertise and large project management skills. It is also management s opinion that CSC s competitive position is enhanced by the full spectrum of IT and professional services it provides, from consulting to software and systems design, implementation and integration, to information technology and business process outsourcing to technical services, delivered to a broad commercial and government customer base. EMPLOYEES The Company has offices worldwide, and as of April 1, 2011, employed approximately 91,000 persons. The services provided by CSC require proficiency in many fields, such as computer sciences, programming, telecommunications networks, mathematics, physics, engineering, astronomy, geology, operations, research, finance, economics, statistics and business administration. U.S. SECURITIES AND EXCHANGE COMMISSION REPORTS All of the Company s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, filed with or furnished to the U.S. Securities and Exchange Commission (SEC) on or after January 19, 1995, are available free of charge through the Company s Internet website, or through the CSC Investor Relations Office at As soon as reasonably practical after the Company has electronically filed such material with or furnished it to the SEC, these items can be read and copied at the SEC s Public Reference Room at 100 F Street, NE, Washington, DC Reports, proxy and information statements, and other information are available on the SEC s website, or by calling the SEC at SEC-0330 ( )

19 FORWARD-LOOKING AND CAUTIONARY STATEMENTS All statements and assumptions contained in this Annual Report and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of These statements represent current expectations and beliefs of CSC, and no assurance can be given that the results described in such statements will be achieved. Forward-looking information contained in these statements include, among other things, statements with respect to CSC s financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of CSC s control, which could cause actual results to differ materially from the results described in such statements. These factors include without limitation those listed below under Item 1A. Risk Factors. Forward-looking statements in this Annual Report speak only as of the date of this Annual Report, and forward-looking statements in documents attached or incorporated by reference speak only as of the date of those documents. CSC does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events, except as required by law. Item 1A. Risk Factors Past performance may not be a reliable indicator of future financial performance. Future performance and historical trends may be adversely affected by the following factors, as well as other variables, and should not be relied upon to project future period results. 1. Our business may be adversely impacted as a result of changes in demand, both globally and in individual market segments, for information technology outsourcing, business process outsourcing and consulting and systems integration services. Economic and political uncertainty may adversely impact our customers' demand for our services. A general economic downturn may adversely affect our customers' demand for consulting, systems integration and other IT services. In addition, our government customers' demand may also be affected by budgetary and political uncertainties, changing priorities, military conflicts and other events. 2. We are subject to a formal SEC investigation and an SEC comment letter process relating to certain previously announced accounting adjustments in our MSS segment, primarily in Europe s Nordic region, which could divert management s focus, result in substantial investigation expenses and have an adverse impact on our reputation and financial condition and results of operations. As previously disclosed, in fiscal year 2011, the Company initiated an investigation into certain accounting errors in our MSS segment, primarily involving accounting irregularities in the Nordic region. Initially, the investigation was conducted by Company personnel, but outside Company counsel and forensic accountants retained by such counsel later assisted in the Company's investigation. On January 28, 2011, the Company was notified by the Division of Enforcement of the SEC that it had commenced a formal civil investigation relating to these matters and other matters subsequently identified by the SEC, with which the Company is cooperating. On May 2, 2011, the Audit Committee of the Board of Directors commenced an independent investigation into matters relating to MSS and the Nordic region, matters identified by subpoenas issued by the SEC's Division of Enforcement and certain other accounting matters identified by the Audit Committee and retained independent counsel to represent CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with such independent investigation. Independent counsel has retained forensic accountants to assist their work. Independent counsel also represents CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with the investigation by the SEC's Division of Enforcement. In addition, the SEC's Division of Corporation Finance has issued comment letters to the Company requesting additional information regarding its previously disclosed adjustments in connection with the above-referenced accounting errors, the Company's conclusions regarding the materiality of such adjustments and the Company's analysis of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting. The Division of Corporation Finance's comment letter process is ongoing, and the Company is continuing to cooperate with that process

20 The investigations being conducted by the Division of Enforcement and the Audit Committee as well as the review of our financial disclosures by the Division of Corporation Finance are continuing and could identify other accounting errors. As a result, we have incurred and will continue to incur significant legal and accounting expenditures, and a significant amount of time of our senior management has been focused on these matters. We are unable to predict how long the Division of Enforcement's and Audit Committee's investigations will continue or whether, at the conclusion of its investigation, the SEC will seek to impose fines or take other actions against us. In addition, we are unable to predict the timing of the completion of the Division of Corporation Finance's review of our financial disclosures or the outcome of such review. Publicity surrounding the foregoing or any enforcement action as a result of the SEC's investigation, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition or results of operations. 3. Our largest customer, the U.S. federal government, accounts for a significant portion of our revenue and earnings. Inherent in the government contracting process are various risks which may materially and adversely affect our business and profitability. Our NPS segment generated approximately 37% of our revenue for fiscal While the pipeline for government projects continues to be generally less affected by economic downturns, the U.S. budget deficit, the cost of ongoing military conflicts, the cost of rebuilding infrastructure as a result of natural disasters, and the costs of other one-time adverse events such as the recent financial industry liquidity crisis, may reduce the U.S. federal government s demand and available funds for information technology projects, adversely impacting our NPS segment and our business. In addition, federal government budget uncertainty has resulted in a delay in government contract awards. Our exposure to the risks inherent in the government contracting process is material. These risks include government audits of billable contract costs and reimbursable expenses, project funding and requests for equitable adjustment, compliance with government reporting requirements as well as the consequences if improper or illegal activities are discovered. If any of these should occur, our reputation may be adversely impacted and our relationship with the government agencies we work with may be damaged, resulting in a material and adverse effect on our profitability. In addition, federal government budget uncertainty has resulted in a delay in government contract awards. 4. We are currently in negotiations with the United Kingdom s National Health Service (NHS) to modify the terms of our contractual relationship. Failure to conclude a satisfactory resolution could materially adversely affect our results of operations and financial condition. CSC and NHS are parties to a 2.9 billiion (approximately $5.4 billion at originally announced exchange rate) contract under which the Company is developing and deploying an integrated electronic patient records system. On February 4, 2011, NHS formally notified the Company that it believes the Company s failure to achieve a key milestone constitutes a breach of contract and NHS is considering its position on termination of all or parts of the contract; however, NHS subsequently clarified that its notice was not intended to suggest that termination is the only option which it is considering and, in fact, NHS is considering the full range of options it believes are available to NHS. Notwithstanding this dispute, both NHS and the Company have continued discussions leading to agreement on the terms of a Memorandum of Understanding (MOU), the terms of which would ultimately be reflected in a contract amendment. There can be no assurance that the Company and NHS will successfully conclude negotiations of the MOU and enter into a contract amendment or, if a contract amendment is negotiated and entered into, that the contract amendment as finally negotiated will reflect the terms of the MOU. The time required to complete a contract amendment is uncertain and while the Company expects completion, signing and approval of a contract amendment in fiscal year 2012, further unexpected delays could occur. Further, under the contract the NHS has the right to terminate the contract for convenience, in which case NHS would owe significant termination fees to the Company; however, the total amount recoverable by the Company from termination fees payable by NHS and from claims by the Company is uncertain and it is possible the Company's total recovery would be materially less than the net asset value associated with the Contract. The final terms of any contract amendment, a significant delay in completing a contract amendment, or failure to conclude a contract amendment could result in an impairment of the Company's net investment in the contract, could result in litigation and could have an adverse material effect on the Company's consolidated financial position, results of operations and cash flow. In addition, these events could result in a goodwill impairment charge (see Notes 9 and 16 to the consolidated financial statements for further discussion). 5. Our ability to continue to develop and expand our service offerings to address emerging business demands and technological trends will impact our future growth. If we are not successful in meeting these business challenges, our results of operations and cash flows will be materially and adversely affected

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